Disclosure of climate change-related information in line with TCFD recommendations

Climate Change Awareness

The real estate sector is responsible for approximately 40% of the global greenhouse gas emissions, and is considered to be particularly affected by the transition and physical risks associated with climate change. Therefore, LLR recognizes that analyzing climate change-related risks and opportunities while appropriately incorporating them into its investment strategy is essential for the long-term stable growth of unitholder value. The key to this strategy is to increase energy efficiency and install solar power generation equipment, which LLR has been doing to successfully reduce greenhouse gas emissions to date.

Endorsement of TCFD Recommendations and Enhanced Disclosure

LRA has expressed its support for the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and has joined the TCFD Consortium, an organization of companies in Japan that support the TCFD.

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The LaSalle Group, including LRA, is committed to achieving carbon neutrality by 2050, and announced a group-wide interim target for 2030 that is consistent with the 1.5°C target. This includes Scope 1 & 2 emissions (and Scope 3 to the extent possible).
As a member of the LaSalle Group, LRA will further deepen its efforts to address climate change and will continue to enhance information disclosure on climate-related issues in order to strengthen dialogue with investors and other stakeholders.
For more information on the disclosures based on TCFD recommendations, see below.

December 22, 2022

Disclosure materials based on TCFD recommendations PDF

Governance

LRA has established an ESG promotion system to continuously promote initiatives for ESG matters including the response to climate change.
For more information on the ESG promotion system, see here.

Strategy

Scenario Analysis

The TCFD recommendations call for an analysis based on scenarios created by exploring various possible futures.
Scenario analysis is performed to examine the risks and opportunities related to climate change according to the path of each scenario, how it will affect the business and its management, and whether there is capacity/resilience to withstand the impacts.
LLR conducted a scenario analysis to understand the risks and opportunities that climate change risk presents to LLR, including its management, and the financial impact it may have on the business.

Assumptions for scenario analysis

Based on the purpose of the Paris Agreement, the two outcomes were set: 4°C scenario and a 1.5°C/2°C scenario. The reference point was assumed to be 2030 for the interim target deadline for CO₂ emission reductions.

Target year	Classification of Climate Change Risks		Primary Sources Referenced
			4°C scenario	1.5°C/2°C scenario
2030	Transition Risks	Risks arising from new regulations, taxation systems, technologies, etc. to achieve a decarbonized society	Failure to curb CO2 emissions (IEA World Energy Outlook 2021)	Achieve net zero CO2 emissions by 2050 (IEA NZE)
	Physical Risks	Risks arising from climate change itself, such as changes in weather	CO2 emissions increased to the maximum possible level assumed (IPCC 6th Report SSP5-8.5)	Net zero CO2 emissions by the mid-21st century and net zero CO2 emissions in the second half of the 21st century (IPCC 6th Report SSP1-1.9 and SSP1-2.6)

Scenario Setup

Strategy to identify risks, opportunities, financial implications and countermeasures

Type		Risk and Opportunity Factors	Risk / Opp.	Financial Impact	Degree of impact(1)		Countermeasures
					4°C scenario	1.5°C/2°C scenario
Transition Risks and Opportunities	Policy and Legal	Increased operating costs related to CO2 emission control measures and higher taxes from introduction of carbon tax	Risk	Increased operational costs	Medium	Medium	Achieve/revise CO2 emission reduction targets Conduct environmental assessments when acquiring new properties Reduce CO2 emissions and raise awareness of energy conservation by collaborating with tenants
	Technology	Delayed response to new technology and equipment. Increase in costs to switch to new technology and equipment.	Risk	Increased costs due to capital investments, and increased electricity costs if the switch to renewable energy is not made	Medium	Medium	Implementation of capital investments Reduction of energy consumption by switching to LED lighting Reduction of CO2 emissions by installing solar panels for on-site consumption Utilization of renewable energy
		Increased demand for environmentally certified/low-carbon properties	Opp.	Increased property values resulting from higher rental revenues due to demand from tenants for environmentally friendly properties	Small	Large	Maintain high ranking of environmental certifications for properties owned Conduct environmental assessments when acquiring new properties
		Cost reductions through operation of facilities with high environmental performance and use of low-carbon energy	Opp.	Decreased running costs associated with converting owned properties to net zero	Medium	Medium	Reduction of CO2 emissions and electricity consumption Promote energy-saving renovations
	Market & Reputation	Loss of reputation and competitiveness in the event of failure to respond to changes in tenant needs	Risk	Decreased rental revenue due to failure to retain tenants	Small	Medium	Acquisition of high-ranking environmental certifications Management of facilities with consideration for tenant needs
		Increased cost of debt financing due to declining reputation and valuation from investors and lenders	Risk	Increased interest expenses due to higher interest rates	Small	Large	Improvement of ESG evaluation Promote communication with investors and lenders regarding environmental initiatives Use of green financing and sustainability-linked financing
		Lower debt financing costs due to improved investor and lender appreciation of environmental responsiveness	Opp.	Decreased interest expenses due to lower interest rates	Small	Large

Type		Risk and Opportunity Factors	Risk / Opp.	Financial Impact	Degree of impact(1)		Countermeasures
					4°C scenario	1.5°C/2°C scenario
Physical Risks and Opportunities	Acute	Increased property insurance premiums due to severe flooding	Risk	Increased property insurance premiums	Small	Small	Conduct flooding risk assessment when acquiring new properties Assess flooding risk and flooding history Implement disaster countermeasures Formulate and periodically review BCP measures through collaboration with tenants
		Increased costs due to severe flooding	Risk	Increased repair costs due to flood damage	Large	Medium
		Decreased property values and rental income from properties at high risk of flooding / Increased risk of business stoppage due to severe flooding	Risk	Decreased rental income due to business stoppage caused by flood damage	Large	Small
		Increased demand for disaster-resistant properties	Opp.	Increased rental revenue due to demand from tenants for disaster-resistant properties	Small	Small
	Chronic	Increased operating costs due to higher average temperatures	Risk	Increased energy costs due to increased air conditioning usage	Small	Small	Introduction/promotion of high-efficiency air conditioning equipment through capital investments Implement measures for appropriate temperature control through collaboration with tenants

(1)	After quantitatively calculating the impact of each risk and opportunity, "small" is considered if the impact is less than 1% of operating income for the fiscal year ending August 31, 2021, "medium" if the impact is between 1% and 5%, and "large" if the impact is 5% or more of operating income.

Risk management

LRA has established a risk management framework to continuously promote initiatives for ESG matters including the response to climate change.
For more information on the risk management framework, see here.

• Investment decisions

When acquiring new assets, the Investment Committee conducts a review of sustainability risks as part of the due diligence process and evaluates the identified risks before making an investment decision. These include soil contamination, flooding risk/history, energy efficiency, environmental certifications, water efficiency, waste management, and safety of building materials, etc.

• On-going management

The ESG Committee manages and monitors all sustainability-related risks. For all properties managed, a "Sustainability Management Plan" is formulated each fiscal year to monitor environmental performance, climate change risk, resilience improvement, etc. Progress is regularly reported to The ESG Committee, and additional measures are considered when necessary. In addition, a Sustainability Guide is distributed to tenants to exchange viewpoints and raise awareness thereby improving the sustainability of each property.